Compared to this, Greece was just a sideshow. Italy could blow Europe to pieces

Watching the cost of servicing Italy’s debt surge past the level that triggered bailouts in Greece, Ireland and Portugal, I found one of Kipling’s verses forming in my mind:

This is midnight — let no star
Delude us — dawn is very far.
This is the tempest long foretold —
Slow to make head but sure to hold.

Italy is the third-largest economy in the EU, and the eighth largest on the planet. Its outstanding debt of €1.9 trillion (£1.6 trillion) accounts for 25 per cent of all the debt in the eurozone.

The Greek crisis was never a serious threat to Europe. Greece accounts for less than two per cent of the EU’s economy. A default by Athens could be managed as a controlled explosion. A default by Rome, on the other hand, would blow the European economy to smithereens.

The calamity now overtaking Italy was ordained when the euro was launched. In order to qualify, governments were supposed to have brought their total debts below 60 per cent of GDP; Italy’s was 114 per cent.

Several economists pointed out at the time that admitting the Italians would be like inviting an elephant into a coracle but, as usual in the EU, political dreams trumped economic reality.

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For several years, markets pretended that all debts in the eurozone were equally safe — that Italian and German debt, for example, were interchangeable. Eventually, though, the realisation sank in: the Italian economy was not growing, which meant its debt, in relation to its GDP, was as high as ever.

The loans that had been pressed on the Italian treasury over decades suddenly looked vulnerable.

Yesterday, panic set in. Those who have lent money to Italy are no longer confident that they will get it back. Naturally enough, they demand a higher interest rate to compensate for the risk of losing their loans. Their fear thus risks becoming self-fulfilling, as Italy is unable to afford the interest rate. The prospect of Italy defaulting on its debts looms.

Those commentators who imagine that we Eurosceptics are enjoying our told-you-so moment couldn’t be more wrong. The eurozone takes 40 per cent of Britain’s exports, and comprises our friends and allies. A recession there will mean another downturn here.